News in South Africa 29th August:
1. Over 900 businesses closed in 2023:
Data from Stats SA shows that 140 businesses in South Africa were liquidated in July.
According to Stats SA, the 127 businesses closed down voluntarily, while 13 did so on a compulsory basis.
This takes the total number of liquidations in South Africa since the start of the year to 942, adding to the 128 businesses that were liquidated in June.
That said, South Africa’s liquidations have declined significantly since 2022.
Stats SA said that the total number of liquidations decreased from 15.2% when comparing July 2022 and July 2023.
The number of liquidations also dropped by 15.9% in the three months ended July 2023 compared to the three months ended July 2022.
There has also been a 14.2% decrease in the number of liquidations for the first seven months of 2023 compared to the same period in 2022.
Industry
The financing, insurance, real estate and business services industry has continued to be the worst-performing industry in terms of liquidations, with 54 in July,
The unclassified (37) and trade, catering and accommodating (22) also saw a large number of liquidations in the first month of Q3 2023.
On the other end of the scale, the electricity, gas and water industry is still yet to see a liquidation in 2023.
The agriculture, hunting, forestry and fishing, and mining and quarrying industries also only saw one liquidation each in July.
2. UIF investment portfolio grows:
The Unemployment Insurance Fund’s (UIF) investment portfolio saw assets under management (AuM) surge 13% to R135 billion for its financial year to the end of March 2023, helped in part by its exposure to domestic bonds and listed equities.
The portfolio, run by the Public Investment Corporation (PIC) – the largest asset manager in Africa with nearly R2.6 trillion managed – grew assets the most among its public sector clients, the parties said in a joint statement on Monday.
The UIF is the PIC’s second-largest client and has a portfolio of assets making up 5.14% of the state-owned entity’s total AuM.
The organisations said higher exposure to domestic bonds and listed equities positively impacted the fund’s investment growth.
“The UIF portfolio has largely recovered from the emergency selloff in nominal bonds to finance the UIF Covid-19 Temporary Employment Relief Scheme [Ters] of R64 billion,” according to the statement.
The portfolio has 92.05% invested in domestic assets, while foreign equities represent the rest. Listed investments constitute 89.9% of the portfolio, with socially responsible investments (SRIs) making up 10.13%.
Apart from the UIF portfolio, the PIC also has public sector clients such as the Government Employees Pension Fund, the Compensation Commissioner Fund, the Compensation Commissioner Pension Fund, and the Associated Institutions Pension Fund.
3. Ballooning debt:
Renowned economist Dawie Roodt said each South African owes around R70,000 more than they think they owe.
Roodt was referring to South Africa’s ballooning debt, which has been increasing at an alarming rate in recent years.
South Africa’s current debt-to-gross domestic product (GDP) ratio is 73%. In nominal terms, the country owes around R5 trillion.
“That means every South African owes around R70,000, which the Minister of Finance incurred on their behalf,” Roodt said.
The situation is set to become much worse as the country’s fiscal deficit this year will be around 6% of GDP.
Fiscal deficit is the term used to describe a shortfall in the government’s income compared to its spending.
In South Africa, the state is spending far more than it gets in, which means it has a growing fiscal deficit and needs to borrow money to make ends meet.
“Revenue is under pressure, and the state’s expenses are bigger than the Finance Minister initially expected,” Roodt said.
At the current trajectory, Roodt expects the debt-to-GDP ratio to reach 76% in the current financial year and increase to 80% the year after that.
“A debt-to-GDP ratio of 80% for South Africa is getting into dangerous territory,” Roodt warned.
The growing debt levels mean South Africa is spending more money on servicing the interest on state debt. It will ultimately result in high inflation levels, stifling economic growth.
Roodt highlighted three things the government needs to do to reduce the debt burden and improve the state’s financial position.
- Grow the economy. However, South Africa’s current macroeconomic policies will not lead to economic growth.
- Spend less money. However, spending less money on people is not politically palatable and, therefore, unlikely.
- Privatise state-owned enterprises. The government can sell state-owned companies before they are worthless.
The problem with all these interventions is that it goes against the socialist policies of the government.
4. Consumers to pay Eskom ‘inadequacies’:
Eskom is hoping to recover almost R24 billion through a regulatory clearing account application (RCA) submitted in April.
If approved, the R24 billion RCA will be added on top of future electricity tariff increases.
Business leaders are pushing back and say that consumers should not be made to pay for Eskom’s inadequacies.
“We accept Eskom needs money to get out of the crisis it finds itself in, but [it] should be doing more to deal with inefficiencies,” said EIUG CEO Fanele Mondi.
5. State incapacity:
Harvard professor Ricardo Hausmann says that the biggest hurdle to economic growth in South Africa is a weak and incapable state.
He added that there are two main ANC policies that drive these hurdles: cadre deployment and preferential procurement.
He said that cadre deployment is backed by too many vested interests, while preferential procurement or BEE is anti-competitive and anti-value-for-money, which makes it very hard for the public sector to be efficient.
All information sourced from articles posted by: BusinessTech, Moneyweb, DailyInvestor, BusinessDay, and Fin24.
